Global supply of titanium is forecast to increase by 20% in 2010 to
around 150,000t following a break in the strong growth cycle from 2005 to
2008 when titanium sponge production increased from 104,000t to 176,000t. The
growth from 2005, which saw large volumes of new and rehabilitated sponge
production come on stream, was partly driven by a surge in demand from the
aerospace sector, but also by growing demand for titanium in chemical plant
in China. Chinese output of titanium sponge increased fivefold between 2005
and 2008.

In late 2008, the global economic slowdown and delays in the production
of high-titanium content aircraft such as the A380 and B787 caused a sharp
decline in titanium demand. At the same time, new sponge plants in the USA
and Japan, initiated in the earlier boom years, were coming on stream. In
both 2009 and 2010, titanium sponge capacity was surplus to demand and
producers delayed further expansions, idled plants and (in China) closed
smaller uneconomic plants. In 2010, China has been the main engine for growth
and production in that country is again growing strongly with several new
large-scale sponge plants under construction.

The easing of world supply of titanium sponge has resulted in sponge
prices dropping steadily since 2006 and the market is likely to be overhung
with surplus sponge capacity until at least 2012 or 2013.

In 2009, production of titanium sponge was confined to six countries, in
order of output, China, Japan, Russia, Kazakhstan, USA and Ukraine. Many of
the larger sponge producers have downstream operations producing titanium
ingot and mill products, but others have played an important role as merchant
supplies of sponge. In 2010, UTMK in Kazakhstan, one of the leading merchant
suppliers of sponge, started melting ingot on a trial basis and has entered
into an agreement with Posco to set up a titanium slab plant in eastern
Kazakhstan. This could have a significant impact on the dynamics of global
sponge supply.

There are now 18 companies producing titanium sponge, of which nine are
in China, compared with just two plants a decade ago. Many companies have
announced further expansion plans, although some are now on hold. If all
expansions come on stream capacity could reach 400,000tpy by 2015. The four
new projects in China, together with expansions in Japan and Russia, could
add 85,000tpy to the total.

In 2010, titanium ingot melting capacity is nominally 340,000t, 85% of
which is located in Russia, USA, Japan and China. Melting capacity is at
least twice that of sponge output, due in part to the practice of double and
triple melting, and in part to the use of scrap in the melt feedstock. The
USA dominates the production of mill products for the aerospace industry
while producers in Japan and China focus on industrial and consumer
applications for titanium.

The global market for titanium mill products in 2009 was about 100kt
compared with 130kt in 2008. On a global basis, demand for mill products is
divided between aerospace (39%), industrial (48%) and consumer (13%) uses,
but there are significant regional variations. In the USA the aerospace
industry accounts for more than 70% of demand while in China industrial
applications dominate. The rapid growth of industrial markets for titanium in
China has shifted the balance away from aerospace, but demand for the higher
grades of sponge and ingot is still heavily influenced by the cyclical nature
of the aerospace industry.

Demand is forecast to grow at 6%py to 2015, resulting in a market for
140,000t of mill products requiring up to 200,000t of sponge. Industrial
markets outside the USA and North America will grow at about 9%py and the
commercial aerospace market in North America and Europe will grow at around
8%py, albeit from a low base in 2009, provided that the delayed development
of the A380, B787 and A350 gathers momentum and the build rates of the B737
rise. The growth in demand from the aerospace sector will come partly from
increased aircraft production, but the main driver is the increased buy-in
weight of titanium per aircraft. The greater use of composites, more
compatible with titanium than aluminium, has resulted in significant
increases in the use of titanium in landing gear, ducting, wing carry through
structures and weight-critical forgings.

The main industrial applications for titanium are in
chemical/petrochemical plant and in heat exchangers; this sector has
exhibited very strong growth over the last five years, almost entirely due to
the rapid expansion in construction of chemical and power plants in China.

The market for sponge, unwrought metal and mill products is characterised
by long-term supply agreements between major producers and consumers, without
the involvement of traders. However, the shortage of sponge in 2006 led to
more activity on the spot market and prices for sponge, which had
historically hovered around US$7/kg, rose to US$30 by the end of that year.
As more sponge capacity came on stream the market started to weaken and by
2010 sponge prices were generally below US$10/kg. Prices of ingot and mill
products were also well below the peaks reached in 2006/7. Scrap prices, on
the other hand, strengthened in 2010 as supplies had dwindled in 2009 as
manufacturing declined. Prices for sponge are not likely to move
significantly above US10/kg until 2014 when the surplus capacity should be
absorbed.

The report contains 337 pages, 134 tables and 84 figures. It provides a
detailed review of the industry, with subsections on the activities of the
leading producing companies. It also analyses consumption, trade and prices.